Cineworld’s legal scary movie implies asset sales

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Signage is seen outside a Cineworld cinema in Manchester, Britain, October 4, 2020. REUTERS/Phil Noble

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LONDON, Dec 15 (Reuters Breakingviews) - Debt-laden Cineworld (CINE.L) is running out of luck. A Canadian court ordered the London-listed cinema chain to pay C$1.23 billion ($957 million) to rival Cineplex (CGX.TO) as damages for abandoning a planned takeover in 2020. The good news: Cineworld plans to appeal, which might take another year, so it doesn’t expect to pay the damages soon.

A 27% slump in Cineworld shares on Wednesday morning suggests investors are understandably taking a grimmer view. The potential fine compares scarily to Cineworld’s newly shrunken market capitalisation of just $600 million. Worse, net debt as of June excluding leases and other add-ons stood at $4.6 billion, 2.6 times the 2022 EBITDA that analysts compiled by Refinitiv expect Cineworld to generate. The uncertainty of the Omicron variant means that EBITDA level may also come down. Hence the potential claim might be in excess of Cineworld’s ability to pay.

Given that the current leverage means it’ll be hard for the company to raise new debt, the group might have to sell assets to raise capital. A potential listing of its business in the United States, which accounts for 70% of group revenue and has that country’s second-largest cinema chain, would be one way out. But given Cineworld’s plight, that or any other asset sales would have to be competitively priced. (By Karen Kwok)

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Editing by George Hay and Oliver Taslic

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